Gastesi advises that friends purchasing a vacation property together should carefully consider holding the property through a limited liability company rather than simply placing all of the individual owners’ names on the title.

As Gastesi explained to Kiplinger, an LLC can provide an important layer of liability protection, particularly when a vacation property will host guests or potentially be used as a short-term rental.

“A vacation home means guests, a pool or a dock, someone else’s grandchildren, and, if the couples ever rent it out when they are not using it, a stream of strangers.”

Proper insurance remains essential, but the ownership structure can help separate potential claims involving the property from the owners’ personal assets.

Gastesi also highlighted financing considerations. Some residential lenders may not provide conventional mortgages directly to LLCs, while transferring a property into an LLC after closing can potentially create issues with a mortgage’s due-on-sale provisions. Buyers should therefore address financing and ownership structure before completing the purchase.

Planning for the Unexpected

Co-ownership arrangements should also account for events that may occur years after the property is purchased, including death, divorce, incapacity, bankruptcy or one owner’s desire to sell.

Gastesi recommends addressing these possibilities through a comprehensive LLC operating agreement. Among other provisions, the agreement can establish:

• Buy-sell procedures
• Rights of first refusal
• A method for determining the property’s value
• Payment terms for a departing owner’s interest
• Procedures for an owner’s death, divorce, incapacity or failure to contribute financially

These provisions can become especially important when an ownership interest passes to an heir who may not want—or be financially able—to participate in the vacation property.

As Gastesi told Kiplinger, “That is how a friendly arrangement turns into a dispute between people who never agreed to be in business together.”

For vacation homes located outside the owners’ home state, an LLC structure may also provide estate-planning benefits because membership interests are generally considered personal property rather than direct ownership of out-of-state real estate.

Protecting the Investment and the Friendship

Ultimately, Gastesi emphasized that a carefully drafted operating agreement can protect both the financial arrangement and the personal relationships behind it.

“Its job is to absorb the disagreements so the friendship does not have to,” he explained.

Gastesi also recommends that each couple or ownership group have independent legal counsel review the agreement before signing. Establishing clear expectations at the outset can help ensure that everyone understands their rights and responsibilities before making a significant long-term investment together.

The Kiplinger article featuring Gastesi’s commentary was also syndicated by MSN and WDC News 5, significantly expanding the reach of his insights on vacation-home co-ownership and planning.